Posts Tagged ‘MtGox going bankrupt’

The Tokyo District Court has issued an order of commencement of the bankruptcy proceedings for MtGox, this is something that was already anticipated after the dismissal of the application for commencement of a civil rehabilitation procedure by the court a few days ago. So what the people that had coins and cash inside the MtGox system will soon need to do is to file a claim in order to be able to at least receive a part of what they had when the liquidating distribution to the approved bankruptcy claims starts and that can take some time, like a few months at least. The exchange rate of Bitcoin has yet again dropped this morning apparently as a result from the MtGox news as well as new information about PBOC trying to tighten the control of banks and payment processors still servicing crypto exchanges and payments. Below you can find quoted some of the most common questions that people will most likely ask that were published in the official announcement for the start of the bankruptcy proceedings:

Current Status
Q. What is the bankruptcy trustee?
A. The bankruptcy trustee is the person who will implement the bankruptcy proceedings
from a fair and independent perspective, through, among other means, the administration
and realization of the Company’s assets and the investigation of the claims and the
liquidating distribution if funds for distribution are secured. The power and authority to
administer and dispose of the assets of the Company is vested exclusively in the bankruptcy
trustee. In this case, I was appointed as the bankruptcy trustee of the Company by the Tokyo District Court.

Q. What is expected to happen under the bankruptcy proceedings?
A. The bankruptcy trustee will implement the bankruptcy proceedings, in which the assets of the bankrupt entity will be managed and converted into cash, the investigation of the claims,
etc. will be conducted, and if funds for a distribution are secured, the liquidating distribution will be made.

Q. Will a creditors’ meeting be held?
A. It will be held on July 23, 2014 (it is expected that serial creditors’ meeting(s) will be held at proper times). For the details of the creditors’ meeting to be held on July 23, 2014, please refer to the order for commencement of the bankruptcy proceedings, etc. which will be available on the Company’s website.
In addition, creditors are not obligated to attend creditors’ meetings, and the creditors will not be disqualified from the liquidating distribution due to their absence from creditors’ meetings. It is planned that the content of the report at the creditors’ meetings will be disclosed on the Company’s website.

Q. What will happen to the power and authority of the representative director of the Company?
A. The representative director of the Company has lost his authority to administer the Company’s assets pursuant to the order of commencement of the bankruptcy proceedings.

Filing Proofs of Claims and Investigation of Claims
Q. What is the filing of proofs of claims? What happens if such filing is not made?
A. The filing of proofs of the claims is a procedure where persons who have bankruptcy claims file proofs of such claims, such as creditor’s name, address, and amount of claim, for participating in the bankruptcy proceedings (please note that the filed claims are not always approved, but rather the bankruptcy trustee will investigate the existence, amount, etc. of such claims after they are filed). Without such filing, creditors cannot receive a liquidating distribution for their claims in the Company’s bankruptcy proceedings, even if funds for distribution are secured and such distribution is conducted.
Detailed information for the filing of proofs of claims, including the form of the filing document and the process of the filing will be disclosed through the Company’s website at a later date. Your patience would be very much appreciated.

Q. When and how will I be informed of the form of the filing document?
A. Detailed information for the filing of proofs of claims, including the form of the filing document and the process of the filing will be disclosed through the Company’s website at a later date. Given that the number of creditors is large, it is expected that it will take a long period (several months) to determine how to distribute the form of the filing document and to prepare for distributing such form. We appreciate your kind understanding.

Q. I want to know how to fill in the filing document and how to submit such document.
A. The method of filling in the filing document and how to submit such document as well as the form of the filling document will be disclosed at a later date through this website.

Q. I want to file proofs of claims immediately by using a document that I have made. Where should I send such document?
A. As stated above, detailed information for the filing of proofs of claims, including the form of the filing document, the method of filling in such document and the process of the filing will be disclosed through the Company’s website at a later date. Your patience would be very much appreciated.
If each creditor submits the filing document using his/her own form, there will likely be confusion, since such documents may lack legally required information, or there may arise discrepancies in the interpretation of the descriptions in such documents. In addition, given that the number of the creditors is large in this case, if such confusion occurs in relation to many creditors, the process of the bankruptcy proceedings would likely be extremely delayed and the interests of the creditors would likely be impaired. We ask for your kind patience until we provide the above stated information.

Q. I have not notified the Company of my name or address. Will the information regarding the filing of proofs of claims be delivered to me without fail?
A. Users who have not notified MtGox of their names and addresses may not receive the individual notices regarding the bankruptcy proceedings from the court or the bankruptcy trustee. We will disclose the necessary information for the creditors through the Company’s website later, and detailed information for the filing of proofs of claims, including the form of the filing document, the method of filling in such document and the process of the filing will also be disclosed through the Company’s website at a later date. Your patience would be very much appreciated. Thus, please check the Company’s website continuously and
regularly.

Status of Administration of the Assets
Q. I would like to know the number of bitcoins that I have deposited with the Company.
A. For the time being, we will continue to offer the service under which you can confirm your balance, which the Company previously offered through its website. However, please note
that the balance that you can confirm on such website is shown for the sake of users’ convenience, and such confirmation is neither a substitute for the filing of a claim nor does it mean that the bankruptcy trustee will approve the existence and amount of such claim. Thus, it cannot always be assured that the balance that you can confirm will be approved as the bankruptcy claim in its full amount. The bankruptcy claim will be fixed through the subsequent procedures, including the filing of proofs of claims and the investigation procedure.
The process of the filing proofs of the claims, etc. will be disclosed through the Company’s website later. Your patience would be very much appreciated.

Q. Please return the bitcoins and cash that I deposited with the Company.
A. We will make the liquidating distribution to the bankruptcy claims if funds for distribution are secured. With regard to the liquidating distribution under the bankruptcy proceedings, please see below.

Q. How many bitcoins or how much cash does the Company have?
A. The actual amount and value of bitcoins and cash of the Company will be investigated by the bankruptcy trustee with the cooperation of certain experts, etc.

Q. Will the bankruptcy trustee investigate the bitcoins and cash that are said to be lost?
A. The bankruptcy trustee will investigate such matters to the extent possible through its asset administration. The Company has consulted with the police authority, and the bankruptcy trustee will also proactively cooperate with it when such cooperation is requested.

Q. What will happen to the business of the bitcoin exchange operated by the Company?
A. It is unlikely that the Company can restart the exchange. The treatment of the exchange business is expected to be decided by taking into consideration various matters, including whether there is any proper buyer candidate who can assume the business and how to transfer the business to such buyer.

Liquidating Distribution
Q. Will there be any liquidating distribution to the creditors? How will it be conducted?
A. The bankruptcy trustee will consider these matters as the bankruptcy proceedings progress.

Others
Q. Will the liability of the representative director of the Company not be pursued?
A. The bankruptcy trustee will conduct an investigation regarding the liability of the representative director of the Company through the bankruptcy proceedings.

Q. Is it not likely that the business of the Company will be assumed by a buyer?
A. Various matters, including whether there is any proper buyer candidate who can assume the business and how to transfer the business to such buyer will be considered by the bankruptcy trustee.

Q. What will happen to the affiliate companies of the Company?
A. At this stage, we are not aware that such companies have filed for the commencement of civil rehabilitation proceedings or bankruptcy proceedings.

Q. I would like to speak to the bankruptcy trustee directly.
A. Given that the number of interested parties (including the users) is extremely large, please refrain from directly contacting the bankruptcy trustee, and please contact the call center if you have any queries. However, please kindly understand that, at this stage, responses will not be given beyond the scope of the details described in this appendix.

It is not final yet, but according to the latest official press releases published on the MtGox’s website things are not looking good as the court has dismissed the application for the commencement of the civil rehabilitation proceedings that MtGox has filed last month. And although it is subject to the decision by the Tokyo District Court, it is expected that the commencement of bankruptcy proceedings will be ordered as suggested by the currently appointed provisional administrator. On MtGox’s website there is now a short Q&A available to answer some of the most common questions that people will probably have in what is coming and what can they expect to happen, below you can see it quoted:

Current Status
Q. Why was the application for the commencement of the civil rehabilitation proceedings
dismissed?
A. In circumstances in which it is difficult for the Company to carry out the civil rehabilitation proceedings, the Tokyo District Court (the “Court”) recognized that it would be difficult for the Company to carry out the civil rehabilitation proceedings and decided to dismiss the application for the commencement of the civil rehabilitation proceedings.

Q. What is expected to happen under the future procedures?
A. We are not in a position to answer this question, as this is a matter for the court to decide. However, it is expected that the court will order the commencement of the bankruptcy proceedings at the appropriate time.

Q. What is an order for provisional administration?
A. It is an order issued by the court under which the provisional administrator, who is appointed by the court, provisionally administers the Company’s assets until the order for the commencement of bankruptcy proceedings is made. Mr. Kobayashi, who served as the supervisor and examiner under the civil rehabilitation proceedings, has been appointed as the provisional administrator.

Q. What is an order for the prohibition of making certain payments, establishing security over
assets and disposing of assets?
A. It is an order issued by the court that prohibits or restricts, until the order for the commencement of bankruptcy proceedings is made, (i) the making of a payment or the establishing of any securities for debts that arise based on a ground that occurred prior to February 27, 2014, without prior approval from the court, and (ii) the disposing of certain assets.

Q. What is an order for comprehensive prohibition?
A. It is an order issued by the court that prohibits compulsory execution, etc. and the commencement of the procedure for the collection of national tax in arrears against the Company’s assets until the order for the commencement of bankruptcy proceedings is made.

Q. If the bankruptcy proceedings commence, what kinds of procedures will there be and how long
will the proceedings last?
A. The bankruptcy trustee will be appointed by the court, and he/she will carry out the bankruptcy proceedings, including the administration of the assets and investigation of claims. It is not certain how long the proceedings will last.

Q. Will a creditors’ meeting be held?
A. At this stage, this has not been decided. If the bankruptcy proceedings commence, the court will decide on a creditors’ meeting.

Q. What will happen to the representative director of the Company?
A. The representative director of the Company has lost his authority to administer the Company’s assets pursuant to the order for provisional administration. The provisional administrator will request the representative director’s cooperation where necessary, and he is willing to readily respond to such request.

Filing Proofs of Claims and Investigation of Claims
Q. By when and how should I file proof of my claim?
A. If the bankruptcy proceedings commence, the period for filing proofs of claims will be designated by the court. Thus, it is not necessary for the creditors to make such filings at this stage. When the period for filing proofs of claims, the date of investigation, etc. are designated, it is expected that the bankruptcy trustee will announce the details for filing proofs of claims, etc. at a certain time. To be clear, even if the bankruptcy proceedings commence, the period for the filing of proofs of claims or the date of the investigation may not be designated, and even if so designated, the time may not be the same as the commencement of the bankruptcy proceedings.

Status of Administration of the Assets
Q. I would like to know the number of bitcoins that I have deposited with the Company.
A. For the time being, we will continue to offer the service under which you can confirm your balance, which the Company previously offered through its website. However, please note that the balance that you can confirm on such website is shown for the sake of users’ convenience, and such confirmation is neither a substitute for the filing of a claim nor does it mean that the bankruptcy trustee will approve the existence and amount of such claim in the future. Thus, it cannot always be assured that the balance that you can confirm will be approved as the bankruptcy claim in its full amount, if the bankruptcy proceedings commence. If such proceedings commence, the bankruptcy claim will be fixed through the subsequent procedures, including the filing of proofs of claims and the investigation procedure. As noted above, details regarding the filing of proofs of claims will be provided by the bankruptcy trustee at the appropriate time, if the period for the filing of proofs of claims or the date of the investigation is designated. To be clear, even if the bankruptcy proceedings commence, the period for the filing of proofs of claims or the date of the investigation may not be designated, and even if so designated, the time may not be the same as the commencement of the bankruptcy proceedings.

Q. Please return the bitcoins and cash that I deposited with the Company.
A. Since the Court issued an order under which the Company is prohibited from making certain
payments, establishing security over its assets, and disposing of its assets, etc., refunding the bitcoins or cash is legally prohibited. In addition, if the bankruptcy proceedings commence, such prohibition will continue pursuant to the Bankruptcy Law in Japan. With regard to the distribution under the bankruptcy proceedings, please see below.

Q. How many bitcoins or how much cash does the Company have on deposit?
A. The properties of the Company will be administrated by the provisional administrator, and it is expected that the actual amount and value of bitcoins will be investigated by the provisional administrator or, if the bankruptcy proceedings commence, the bankruptcy trustee (it is expected that certain experts may be involved).

Q. Will the provisional administrator investigate the bitcoins and cash that are said to be lost?
A. When the bankruptcy proceedings commence, it is expected that the bankruptcy trustee will investigate such matters to the extent possible through its asset administration. The provisional administrator also plans to conduct some investigation to the extent possible at this stage with the help of certain experts. The Company has consulted with the investigative authority, and the provisional administrator will also proactively cooperate with it when such cooperation is requested.

Q. What will be happen to the business of the bitcoin exchange operated by the Company?
A. It has not been decided yet, but after the bankruptcy proceedings commence, it will be unlikely that the Company can restart the exchange. The treatment of the exchange business is expected to be decided taking into consideration the various matters including whether there is any proper buyer candidate who can assume the business and how to transfer the business to such buyer.

Distribution
Q. If the bankruptcy proceedings commence, will there be any distribution to the creditors? How
will such distribution be conducted?
A. It is not possible to respond to these questions at this stage. If the bankruptcy proceedings commence, the bankruptcy trustee will decide these matters upon consultation with the Court.

Others
Q. Will the liability of the representative director of the Company not be pursued?
A. It is expected that, if the bankruptcy proceedings commence, an investigation regarding the
liability of the representative director of the Company will be conducted as part of the bankruptcy proceedings.

Q. Is it not likely that the business of the Company will be assumed by a buyer?
A. The treatment of the exchange is expected to be decided taking into consideration various matters, including whether there is any proper buyer candidate who can assume the business and how to transfer the business to such buyer.

Q. How will the affiliate companies of the Company be treated?
A. At this stage, we are not aware that such companies have filed for the commencement of civil rehabilitation proceedings or bankruptcy proceedings.
It is expected that the relationship with the affiliate companies will be properly administrated by the bankruptcy trustee and that the affiliate companies are willing to proactively cooperate with the trustee.

Q. I would like to speak to the provisional administrator directly.
A. Given that the number of interested parties (including the users) is extremely large, please refrain from directly contacting the provisional administrator, and please contact the call center if you have any queries. However, please kindly understand that, at this stage, responses will not be given beyond the scope of the details described in this appendix.

Q. Am I acknowledged as a creditor or a user that has deposited bitcoins with the Company?
A. Please note that, even if you confirm your balance on the Company’s website, it does not always mean that the Company acknowledges you as a creditor or a user. Thus, it cannot always be assured that the balance that you can confirm will be approved as the bankruptcy claim in its full amount, if the bankruptcy proceedings commence. It is expected that the identification of creditors or users who deposited bitcoins with the Company will be conducted where necessary in a certain manner in the future procedures.

Q. What will happen to the Chapter 15 proceedings or the lawsuits in the United States of
America?
A. The provisional administrator has to treat both the domestic and international creditors equally in the proceedings in Japan, and thus, it is our view that we need to maintain the Chapter 15 proceedings in the United States along with the proceedings in Japan. It is expected that the same can be said if the bankruptcy proceedings commence.

You can check the MtGox official website for the latest press releases and any new information…

The problems that MtGox had that have led to the exchange shutting down and announcing the disappearance of about 750000 Bitcoins of users from the exchange (about 850000 total) that they have claimed to be stolen due to the Bitcoin Transaction Malleability. Yesterday MtGox has released another official announcement that they are cooperating with the metropolitan police department of Tokyo and that they have provided all of the required records and documents to the police that are required for the ongoing investigation. At the same time a new report made by Christian Decker, Roger Wattenhofer from the ETH Zurich University in Switzerland has concluded that MtGox may have lost just a few hundred Bitcoins due to the transaction malleability and not hundreds of thousands as they claim.

In Bitcoin, transaction malleability describes the fact that the signatures that prove the ownership of bitcoins being transferred in a transaction do not provide any integrity guarantee for the signatures themselves. This allows an attacker to mount a malleability attack in which it intercepts, modifies, and rebroadcasts a transaction, causing the transaction issuer to believe that the original transaction was not confirmed. In February 2014 MtGox, once the largest Bitcoin exchange, closed and filed for bankruptcy claiming that attackers used malleability attacks to drain its accounts. In this work we use traces of the Bitcoin network for over a year preceding the filing to show that, while the problem is real, there was no widespread use of malleability attacks before the closure of MtGox.

The transaction malleability problem is real and should be considered when implementing Bitcoin clients. However, while MtGox claimed to have lost 850,000 bitcoins due to malleability attacks, we merely observed a total of 302,000 bitcoins ever being involved in malleability attacks. Of these, only 1,811 bitcoins were in attacks before MtGox stopped users from withdrawing bitcoins. Even more, 78.64% of these attacks were ineffective. As such, barely 386 bitcoins could have been stolen using malleability attacks from MtGox or from other businesses. Even if all of these attacks were targeted against MtGox, MtGox
needs to explain the whereabouts of 849,600 bitcoins.

Now, MtGox definitely needs to explain how come only 386 Bitcoins could have been stolen using malleability attacks and they claim that about 850000 coins were in fact missing. Did they just find a good excuse to get away with the users Bitcoins or there is something different going on here. We do recommend that you take a look at the report in question.

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